MS took this ability out of XP, but this will supposedly give it back to you. I don't remember where I found this or else I'd link to the page. I have not actually tried it so I can't varify it.
Open the folder you want a background on.
Make sure you can see ALL files. To do so: Go Start > Control Panel > Folder Options > View tab, under "Hidden files and folders" check "Show hidden files and folders" AND UNCHECK "Hide protected operating system files (recommended)".
Check to see if that folder has a file called "desktop.ini". If the folder does NOT have that file, you need Windows to create it for you... Right click in an empty area of the folder > Properties > Customize tab > Click "Customize" button > select the normal folder icon, Apply, OK (doing this creates the file). Note - you can delete this choosing of the folder icon later. All you want is the file, not the folder icon.
Open desktop.ini and add the following lines of code:
[ExtShellFolderViews]
{BE098140-A513-11D0-A3A4-00C04FD706EC}={BE098140-A513-11D0-A3A4-00C04FD706EC}
[{BE098140-A513-11D0-A3A4-00C04FD706EC}]
IconArea_Image=C:\My Folder Background.jpg
If you had to perform the second part of number 3 (You had to select an icon for the folder so Windows would create the file), you can delete the following code, which was used to change the folder icon:
[.ShellClassInfo]
IconFile=%SystemRoot%\system32\shell32.dll
IconIndex=(some number)
This lets the folder have the default icon back, but the desktop.ini file which you want still remains, and now only contains the code for a background image.
Finally, edit the last line of code (IconArea_Image=C:\My Folder Background.jpg) to the path of your picture, save the file and close it. Refresh the folder and it should have the new background.
For customizing the folder icon(just in case you or someone else needs it as well):
Open Windows Explorer
Select a folder. Right click and select [Properties]
The Property Sheet for the selected folder will open
Select the [Customize] tab. You can change the type of folder to match the contents, select a picture for use in thumbnail view or change the folder icon that will appear in any view other than thumbnail.
